‘Peer-to-peer' lending not protected by the FSCS

‘Peer-to-peer' lending is becoming an increasingly popular alternative to high street savings with consumers looking for the most competitive rates of interest.

In these tough times, it is understandable that people are looking for a return on their hard-earned cash. However, many people may not realise the Financial Services Compensation Scheme (FSCS) does not protect money in peer-to-peer lending companies.

The issue came to light recently with the failure of one of the firms, Quakle.

In the last 18 months savers have switched £192million into these ‘money exchange' websites, where consumers can borrow and lend money to each other. They agree the rates between themselves and avoid the charges typically laid on by banks.

Despite the often very attractive rates, the Financial Services Compensation Scheme (FSCS) is reminding people of the protection it provides for financial services products.

Mark Neale, Chief Executive of the FSCS, said: "It is understandable consumers want the best rate of interest for their savings in the current climate. And peer-to-peer lending may be the right choice for some people who are looking for a return on their savings or want a competitive loan rate.  It is important to remember though the FSCS does not protect the money invested though peer-to-peer lending companies.

"The FSCS protects the money held in an authorised bank, building society or credit union up to £85,000 per-person or £170,000 for joint accounts."

The FSCS has helped more than 4.5m people and paid out more than £25bn in compensation since 2001. It was set up by government, is independent and free to consumers. Financial services firms fund the compensation scheme.

For further information, visit fscs.org.uk.